U.S. Allies to Sign Sweeping Trade Deal in Challenge to Trump
Posted March 8, 2018 10:05 a.m. EST
TOKYO — A trade pact originally conceived by the United States to counter China’s growing economic might in Asia now has a new target: President Donald Trump’s embrace of protectionism.
A group of 11 nations — including major U.S. allies such as Japan, Canada and Australia — is set to sign a broad trade deal Thursday that challenges Trump’s view of trade as a zero-sum game filled with winners and losers. Covering 500 million people on either side of the Pacific Ocean, the pact will represent a new vision for global trade as the United States threatens to impose steel and aluminum tariffs on even its closest friends and neighbors.
Trump withdrew the United States from an earlier version of the agreement, then known as the Trans-Pacific Partnership, a year ago as one of his first acts in office. It will undeniably be weaker without the participation of the world’s biggest economy.
But the resuscitated deal could serve as a powerful sign of how countries that have previously counted on U.S. leadership are now forging ahead without it.
“Only free trade will contribute to inclusive growth of the world economy,” Taro Kono, Japan’s foreign minister, told a group of ministers from Southeast Asian countries in Tokyo on Thursday. “Protectionism isn’t a solution.”
In its original incarnation as the TPP, the pact was conceived as a counterweight to China, whose vast economy was drawing other Asian countries closer despite its state-driven model and steep trade barriers. Not only would the TPP lower trade barriers, it could also prod Beijing to make changes to enjoy the same benefits.
When President Barack Obama was advocating the deal, he said “America should call the shots” instead of China.
Now, the agreement could in some respects act as a defense against the shots the United States is calling.
The United States has “gone from being a leader to actually being the No. 1 antagonist and No. 1 source of fear,” said Jeffrey Wilson, head of research at Perth U.S.-Asia Center at the University of Western Australia. “If you’re a trade policymaker in Asia, your No. 1 fear is that Trump is going to take a swing at you.”
He added that such fears could prompt countries, however reluctantly, to tether themselves more closely to China. “The U.S. is really delivering the region to China at the moment,” Wilson said.
The new agreement — known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership — will drop tariffs drastically and establish sweeping new trade rules in markets that represent about a seventh of the world’s economy. It will open more markets to free trade in agricultural products and digital services around the region. While U.S. beef faces 38.5 percent tariffs in Japan, for example, beef from Australia, New Zealand and Canada will not.
Once it goes into effect, the agreement should generate an additional $147 billion in global income, according to an analysis by the Peterson Institute for International Economics. Its backers say it will also bolster protections for intellectual property and include language that could prod members to improve labor conditions.
Other members will include Mexico, Vietnam, New Zealand, Chile, Malaysia, Peru, Singapore and Brunei. Officials are scheduled to sign the deal Thursday in Santiago, Chile.
“The message is that we believe in the value of an open economy and economic integration of countries in order to generate greater prosperity for our people and our nations,” President Michelle Bachelet of Chile said in a recent interview at the presidential palace.
“I think that is a tremendously important value at a time when certain sectors of the world are sending messages that run contrary to this choice, preaching messages of nationalism rather than integration,” she added.
China, which has discussed forming its own regional trade pact, has been more positive about the new deal since the United States pulled out. It sent a high-level delegation a year ago to Viña del Mar, Chile, where the pact’s members sought to regroup after the United States pulled out. Experts said China could feel the pull if still more countries joined the pact. The pact is also built around fostering trade in sophisticated manufactured goods and high-tech products, and China now produces many of those in abundance.
“It’s hard to ignore rules that everyone else is agreeing to, and they will probably look carefully at these rules,” said Wendy Cutler, a former U.S. trade negotiator who worked on the Trans-Pacific Partnership and is now managing director of the Washington office of the Asia Society Policy Institute. “Over time, they may want to consider joining the TPP.”
Wang Yi, China’s foreign minister, said Thursday that the government hoped free-trade agreements in the region would play “a constructive role in their respective fields in resisting trade protectionism and building an open world economy.”
The new version of the TPP remains a shadow of its former self. With the United States, the agreement would have represented 40 percent of the world’s economy, giving its provisions added heft. Its impact could be swamped if Trump’s tariffs provoke a global trade war. Still, the deal could appeal to companies trying to navigate the shifting trade waters.
“In a world that is so upside-down, especially for companies, companies will need to seek out growth and stability wherever they can,” said Deborah Elms, founder and executive director of the Asian Trade Center, a consulting firm in Singapore. “And that stability does not appear to be coming from the United States, where policy seems to shift at a moment’s notice.”
Japan, which has the largest economy among the remaining trade partners and played a leadership role in keeping the coalition of 11 countries together, is still holding out hopes that the United States might return to the pact, under either Trump or a subsequent administration.
“We think the U.S. should come back, and we’ll say, ‘Please do come back,'” said Ichiro Fujisaki, a former Japanese ambassador to Washington. “It may sound a little impertinent, but the U.S. has taken many different positions on the economy or security.”
The Trump administration has recently signaled that it is open to re-entering the Trans-Pacific Partnership. In an interview at the World Economic Forum earlier this year, Trump said, “If we did a substantially better deal, I would be open to TPP.”
Steven Mnuchin, the U.S. Treasury secretary, said he had held discussions about the prospect of rekindling U.S. membership in the pact, though at a congressional hearing in February, he said it was not a priority.
Yorizumi Watanabe, a professor of policy management at Keio University in Tokyo, said, “If the U.S. is retreating from this region, either as the pace setter or agenda setter of economic affairs or security affairs, this will be quite detrimental to the stability of this region.”
He added: “TPP as such should not be seen as a mere free-trade or economic agreement. This should be seen from a kind of geopolitical point of view.”
Heft could come from others. The Peterson Institute estimates that if five other places — Indonesia, South Korea, the Philippines, Taiwan and Thailand — joined the partnership, the annual increase to global income would total $449 billion by 2030, almost as much as it would have been if the United States were included.
In the deal being signed Thursday, only 22 of more than 600 original provisions have been suspended, relating to intellectual property protection and a grab bag of other issues, several of which had been pushed by the United States. Kazuyoshi Umemoto, Japan’s chief negotiator for the partnership, said that if the United States decided to re-enter the deal, those provisions could be reinstated.
“Trump won’t last forever,” said Patricio Navia, a political scientist at New York University. “Countries will return to a path toward globalization and this sends a beacon of hope.”